NEW DELHI: India’s equity market benchmarks, the BSE Sensex and NSE Nifty50, have dropped approximately 8% from their all-time highs in just a month, sparking panic among millions of investors unaccustomed to such a sharp correction. The downturn isn’t limited to the main indices. Over the past month, small- and mid-cap indices have also plunged by more than 8% due to concerns over high valuations, with individual stocks in these segments falling by 20-30%.
Data shows that the market capitalisation of all BSE-listed firms has declined from around R479 lakh crore to R438 lakh crore as of Friday’s close, wiping out R41 lakh crore in investor wealth in one month.
Varun Kumar, a 35-year-old lawyer from Gurugram, has invested R30 lakh in defence, shipbuilding, and PSU stocks three months ago because they were hitting new highs and experts were bullish.
“Now my portfolio is down nearly 30%, and I’m thinking of cutting my losses and exiting the market,” he said. Shruti Sharma, a 26-year-old IT professional from Bengaluru, is also concerned as she invested heavily in mid-cap and small-cap schemes. “My portfolio has been declining for weeks, and I am now considering selling and moving to lower-risk assets,” she said.
With no immediate signs of a strong rebound, many investors like Kumar and Sharma are considering booking losses to avoid further declines. They feel the post-pandemic bull run may be over, and recent purchases have proven costly.
However, some see this correction as an opportunity to “buy the dip.” Market experts advise staying invested, as long-term fundamentals remain strong, and view the current phase as a temporary setback.
“For the short term, continue with your Systematic Investment Plans (SIPs) and hold your current investments as per your asset allocation. In the medium term, start buying high-quality stocks that were previously too expensive. Stagger your purchases and boost your SIPs with lump sums during market weakness,” said Vikaas Sachdeva, MD of Shriram Alternate. Sachdeva also suggested sticking to quality stocks, especially in sectors like defence and PSUs, which may take longer to recover due to their high valuations and widespread retail investment.
Madhu Nair, CEO of Union Mutual Fund said that we overestimate what markets can do in short term and underestimate what it can do in long term. He also said that investors should stick to their plan as the underlying fund portfolios are any way monitored by experts whose job is to make the changes if required.
Utkarsh Sinha, MD of Bexley Advisors, emphasised the importance of staying invested for long-term returns. “Retail investors often buy during market highs and sell during lows. The current dip presents a buying opportunity, but instead of picking individual stocks, consider equity-weighted or index funds,” he said.
Why is the market is falling?
Markets have been declining for four consecutive weeks, with the Nifty and Sensex falling over 2.5% last week, closing near their weekly lows at 24,180.80 and 79,402.29, respectively. The broader market saw midcap and small-cap indices tumble around 6%. This downturn is largely driven by heavy selling by foreign portfolio investors, who have sold R102,931 crore in equities through October 24—the highest-ever monthly outflow in India’s capital markets. Experts suggest FPIs are selling Indian stocks, seen as overvalued, in favour of cheaper Chinese stocks. Hong Kong’s Hang Seng is trading at 9.4 times forward earnings, while the Shanghai Composite Index trades at 12 times, compared to Nifty50’s 20.6 times.
“The current wave of FPI selling was triggered by Chinese stimulus measures and the relative cheapness of Chinese stocks. India’s elevated valuations made it an attractive target for FPI selling,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Vijayakumar added that continued FPI selling is likely in the near term due to weak market sentiment, the escalation of tensions in the Middle East, and uncertainty around the US presidential election. Weak earnings from top Indian companies are adding to the market’s woes. Shares of IndusInd Bank plunged 19% on Friday after reporting a 40% drop in Q2FY25 net profit. Shares of other major companies, including Bajaj Auto, Nestle and HUL also saw sharp declines following disappointing quarterly results.
Recovery may take time
Analysts caution that the market’s recovery may not be swift, even though domestic investors continue to pour money into equities. Global brokerage Goldman Sachs recently downgraded India from “overweight” to “neutral” in its Asia/emerging market allocations, citing slower economic growth and corporate profits.
